ASX to extend huge quarter ahead of budget, RBA, US jobs

The gains in the quarter also represented a rebound from a slump in the fourth quarter of 2018, and markets are still trading below the highs they achieved in the past year.

Investors are questioning whether markets can move higher from this point, given the spectacular performance from global shares in the first quarter. A short-term pullback is possible, according to AMP Capital’s Shane Oliver, but sharemarkets should eventually end the year at a higher level, he believes.

“Valuations are OK, global growth is expected to improve into the second half of the year, monetary and fiscal policy has become more supportive of markets and the trade war threat is receding, all of which should support decent gains for sharemarkets through 2019 as a whole,” Dr Oliver said.

On the fiscal side, the federal budget due on April 2 could provide markets with a helping hand if policies are announced that support Australian economic growth. HSBC’s economics team, for one, is expecting measures to be announced that will support the economy.

“We expect the government to announce a range of tax cuts and spending measures, and to use the budget to set out its election campaign platform,” noted HSBC’s Australian economics team led by Paul Bloxham.

Treasurer Josh Frydenberg will hand down the budget on Tuesday, the same day the RBA meets to decide on rates.

“We expect tax cut and spending measures that could deliver around $8 billion to $12 billion support to the economy. Most prominently, there are likely to be more generous tax cuts,” he added.

According to the Commonwealth Bank’s economics team, the starting point for the budget is in a better position than it expected it would be when the mid-year review was announced late last year.

Higher-than-expected commodity prices are part of the government’s revenue windfall, the CBA team noted, while a solid labour market and weak inflation have restrained expenditure.

“Model results point to a net improvement in the budget bottom line of $28 billion over four years.

“The nominal economy is in good shape and there is the potential for some upgrades to this side of the story.

“Iron ore and metallurgical coal prices are sitting well above the MYEFO forecasts so there are likely to be some upward revisions there. This should lift the terms of trade and nominal gross domestic product forecasts.”

The budget takes place on the same day as the Reserve Bank of Australia will announce its latest interest rate decision, The RBA has left rates on hold at 1.5 per cent since its last move in August 2016.

If the government unveils tax cuts, that “may allow the RBA to be a little more confident about the income/consumption outlook but that will be after it adjusts its current views to a much more realistic and lower growth trajectory,” noted Westpac’s chief economist Bill Evans.

“With so much uncertainty about the impact of fiscal policy and the negative forces around housing; rising savings rates; low inflation and softening global growth building over the next months the RBA is still likely to move in August particularly now that the move is fully priced in to markets,” Mr Evans added.

Meanwhile, White House chief economic adviser Larry Kudlow has called on the Federal Reserve to “immediately” cut US interest rates by a half percentage point. Friday will see the release of US employment data. Economists are expecting payroll growth to rebound to 175,000 after a shock 20,000 gain in February.